U.S. Talks to Banks About Easing Poland's Debt

By CLYDE H. FARNSWORTH, Special to The New York Times

Published: May 10, 1990

WASHINGTON, May 9—
The Bush Administration told Congress today that it opposed writing off American Government debt in Eastern Europe, but raised the possibility that commercial banks could forgive a portion of their debts and provide Poland with additional loans through special provisions of the Brady debt reduction plan.

Under the plan disclosed 14 months ago by the Treasury Secretary, Nicholas F. Brady, incentives offered by the International Monetary Fund and World Bank are meant to entice commercial banks to voluntarily forgive a portion of their debts in countries that pledge ambitious economic reforms. The Administration said Poland now met that requirement.

So far, the formula has been applied to six countries - Mexico, Costa Rica, the Philippines, Ecuador, Venezuela and Morocco. Poland would be the first to benefit in Eastern Europe.

Of Poland's $38 billion of foreign debt, about 20 percent is held by commercial banks, mostly German. The stake of American banks is relatively small.

David C. Mulford, the Treasury Under Secretary for International Affairs, told the House Banking Committee's Subcommittee on International Development, Finance, Trade and Monetary Policy today that the Treasury had been in contact with American and foreign banks on Polish debt reduction. It was the first indication of active involvement by the Treasury in the Polish debt situation.

''We have not told the banks what to do,'' Mr. Mulford told the lawmakers. But pointing to Poland's sweeping free market economic reforms, he added, ''We would look to the banks for a voluntary negotiation to address the issue of debt reduction for those banks that want to make that choice.''

Representatives of some commercial banks were cool to the idea. ''The short-term problem is to stabilize the Polish economy,'' said Horst Schulmann, managing director of the Institute of International Finance, which represents 160 commercial banks.

He also said there could be a ''very strong negative impact'' if the United States and other governments sought to ''jawbone'' the banks into a debt-reduction plan for Poland, as occurred late last year with Mexico.

Asked whether his response meant that banks would not engage in negotiations with Poland under the Brady plan, he responded, ''Never say no.''

Government Firm on Loans

Bankers also argued that it was unfair to ask for commercial debts to be written off in Eastern Europe when the governments of the industrial countries refused to mark down their own loans. Third world governments owe the United States $63 billion, said Mr. Mulford; Poland's share of that is $3 billion.

Two subcommittee members, John J. LaFalce, Democrat of upstate New York, and Jim Leach, Republican of Iowa, urged a special American program to write off Government loans to Eastern Europe. Representative LaFalce proposed that the United States forgive Poland's $3 billion debt and see to it that the money went into the environmental cleanup of Poland.

But Mr. Mulford outlined a series of reasons why the Bush Administration was opposed to such actions. He cited budget implications, ''when we have major budget problems already;'' the drawbacks of favoring one region of the world over another, and technicalities in which a writeoff for one country automatically improves the status of debt held by others.

Strong Reaction

Mr. Schulmann reacted strongly to the idea that banks forgive debt while the Government does not. ''Mulford says he can't do it because of $63 billion,'' he said. ''But what the hell does he think he's talking about, commercial banks hold close to $1 trillion of third world debts.''

Poland's Finance Minister, Leszek Balcerowicz, who has been here to attend the spring meetings of the I.M.F. and the World Bank, told reporters Tuesday that a failure to obtain debt relief would jeopardize Poland's program to privatize large sections of its economy, which is 80 percent state-owned. He indicated that Warsaw would seek an 80 percent cut in interest payments.

At present, Poland is making no payments to commercial banks. Earlier this year it won concessions on debt it owes to foreign governments under which it is freed from interest payments until March 1991.